Volatility is nothing new, of course, but in a time of so many uncertainties – from Brexit to China to dividend cuts and this week’s ONS manufacturing output figures – should investors be taking diversification more seriously within their domestic fund choices?
Looking outside of the main index where the most revered investors – particularly within UK Equity Income – ply their trade, is an ideal place to start.
Jason Hollands, managing director at Tilney Bestinvest points to small and mid-sized companies as where the success rate of active managers is particular high.
He also advocates investing in a “true active” fund that takes an unconstrained approach, such as Liontrust Special Situations, Ardevora UK Income, Standard Life UK Equity Income Unconstrained or JO Hambro UK Opportunities.
The Ardevora fund pursues a fairly concentrated approach, currently holding just 39 shares in large and mid-sized companies, while JO Hambro UK Opportunities has around 19% in cash as the manager John Wood looks to balance his highest convictions with a cautious outlook.
"Regardless of how you plan to access UK equities, it is important to try to put aside short-term volatility and participate rather than flee to the side-lines"
The portfolio is roughly two-thirds invested in large cap, with 14% in medium-sized companies, and industrials make up 30% of the portfolio with no exposure to financials.
Other UK equity funds with relatively high holdings in cash include JPM UK Equity Growth Fund at 12% and the Henry Dixon-led Man GLG Undervalued Assets at 11%.
The latter fund’s biggest underweights include mega-caps Royal Dutch Shell, British American Tobacco, GSK and Vodafone.